Vacations with Debt

[crisi]

Okay, I admit finance is not my strong point. Biology degree here. So, perhaps that is why I just don't understand why those with a mortgage would tell someone with a 5K credit card balance that they could never go on a vacation with debt when they have debt themselves. I understand equity in a house can add to your net worth but it's still a debt; right? You are still paying interest and the longer you take to pay the loan the more interest you will pay; right? i wonder how many of those people that are saying they could never go on a vacation with cc debt are actually in a favorable position with their mortgage as you and I. By favorable, I mean have a good deal of equity in their house. I get the difference between secured and unsecured but, in simplistic terms, it's still a debt your are paying back with interest to someone; right?

My own take on it is that "I wouldn't go on vacation without a significantly positive net worth an where I couldn't pay for the vacation in liquid assets." I implied a couple of pages ago, that some people adhere to "good debt/bad debt" - My financial decisions are more along the lines of managing "net worth, liquid assets, and cash flow" - along with that all important balance concept. But its a more complicated view.

The more important thing is that your house is an asset. Not lately, but normally, your house is worth more than your mortgage on it. Your house, even with the mortgage on it - is supposed to be "worth something." Your credit card bill supports something that is worth....a couple hundred bucks at a garage sale? This gets to the net worth part of my more complicated view.

To Ginny's point - psychologically there is a HUGE difference between a mortgage and a credit card. Credit card use becomes an easy habit. A mortgage is structured - although people DID in the 90s, its hard to become a mortgage junkie.

 

[LovableGluttons]

I could have written this. DH and I grew up without any financial stability and then were very poor as we put our selves through college. It took years for us to gain the financial stabilty that we have now enjoyed for years and we cherish it. We have seen first hand how stressful debt is to us (not everyone- us).

Now we're dealing with retired parents who never planned to stop working and we don't want to be in that position in our own retirement.

No doubt our individual experiences color how we feel about and manage debt.

DH and I do not have an extravagant lifestyle, at least we don't feel like we do. Seeing the people around us finance homes, cars, vacations, furniture, electronics, then have nothing left after making all the payments on all these things was unnerving.

I remember trying to plan for DH's military retirement and our move to Florida. We came to Florida 6 months before his retirement to house hunt, vacation, and job hunt. I think we spent two weeks total away for that.

When we returned, people asked how we could possibly afford to just go buy a house. The concept that we save the money first, then purchase something, so there is no need for loans, seems normal to us, but wasn't among our friends.

If I had to choose between a $52,000 car and $52,000 for a pool, I'd go for the pool! LOL I'd use it and enjoy it more.

I have family who have lots of gadgets and stuff, but are poor due to paying interest. $1300 a month of their mortgage payment on their new home this month is interest. $1300~

 

[GinnyEmma]

Crisi, thanks. I appreciate a good explanation. All I meant by psychologist is that I have no financial training and was one if the people who got in cc trouble after college. Dh luckily had a great deal of training. So while dating I got it flipped around. I admit that usually I just take the major points. Lol, it makes it easier to stay balanced.

We are close to paying off our house, because of a wicked 10 year loan. We gave up a lot of things because of it, but it did teach is that we need priorities.

 

[marie1203]

Okay, I admit finance is not my strong point. Biology degree here. So, perhaps that is why I just don't understand why those with a mortgage would tell someone with a 5K credit card balance that they could never go on a vacation with debt when they have debt themselves. I understand equity in a house can add to your net worth but it's still a debt; right? You are still paying interest and the longer you take to pay the loan the more interest you will pay; right? i wonder how many of those people that are saying they could never go on a vacation with cc debt are actually in a favorable position with their mortgage as you and I. By favorable, I mean have a good deal of equity in their house. I get the difference between secured and unsecured but, in simplistic terms, it's still a debt your are paying back with interest to someone; right?

To add to what Crisi said, most people have a mortgage or are renting. I really do not see much of a difference in that. Either way you need a roof over or head, so month after month you will either have to pay the rent or mortgage it is not something you can just cut. For some people might be cheaper to have a mortgage than renting. With rent you are not paying interest, but you are giving a security deposit. I see this more as a need just because rent doesn't appear on credit doesn't mean is not there or is not something you owe in the future.
Also most credit card debt is created but wants not needs. People want the latest ipod, tv, etc. To add to that people that usually carry cc debt also have mortgage. I guess as you said it will come down to priorities and a vacation IMO doesn't fall into that.

 

[crisi]

Crisi, thanks. I appreciate a good explanation. All I meant by psychologist is that I have no financial training and was one if the people who got in cc trouble after college. Dh luckily had a great deal of training. So while dating I got it flipped around. I admit that usually I just take the major points. Lol, it makes it easier to stay balanced.

We are close to paying off our house, because of a wicked 10 year loan. We gave up a lot of things because of it, but it did teach is that we need priorities.

Yes, but the psychology behind finance is as important as the numbers - its a good thing to bring up. Especially when you start using words like "they are only young once" or "you never know what tomorrow will bring." Those don't tend to be justifications for getting a mortgage.

 

[nrpofp]

Okay, I admit finance is not my strong point. Biology degree here. So, perhaps that is why I just don't understand why those with a mortgage would tell someone with a 5K credit card balance that they could never go on a vacation with debt when they have debt themselves. I understand equity in a house can add to your net worth but it's still a debt; right? You are still paying interest and the longer you take to pay the loan the more interest you will pay; right? i wonder how many of those people that are saying they could never go on a vacation with cc debt are actually in a favorable position with their mortgage as you and I. By favorable, I mean have a good deal of equity in their house. I get the difference between secured and unsecured but, in simplistic terms, it's still a debt your are paying back with interest to someone; right?

My interest rate on my mortgage rate is 4%. I get a tax right off. I can sell my house and pay off the mortgage, and have a little left over. 5 years ago I could have had a lot left over, but we all know that story. Most of us do not make 300,000+ a year to pay cash for a house. We need a place to raise are families in a decent neighborhood with good schools. For most of us that requires going into debt. Most of us need a safe car to drive are families around in. No way am I driving my kids around in a 15 year old beater. Most of us have car payments. I will draw the line at credit card debt unless I get a 0% offer on something, and then it has to be a reasonable. I think the whole 0 debt thing is great, and easy to do if your income is high enough. For most middle class families its difficult to achieve.

 

[ccgirl]

Crisi, thanks. I appreciate a good explanation. All I meant by psychologist is that I have no financial training and was one if the people who got in cc trouble after college. Dh luckily had a great deal of training. So while dating I got it flipped around. I admit that usually I just take the major points. Lol, it makes it easier to stay balanced.

We are close to paying off our house, because of a wicked 10 year loan. We gave up a lot of things because of it, but it did teach is that we need priorities.

Crisi, I too appreciate your explanation. Very thorough.
Bolded is the point I am trying to make. If those with a mortgage gave up their vacations they could pay off the mortgage quicker and, therefore, be out of debt quicker.

To add to what Crisi said, most people have a mortgage or are renting. I really do not see much of a difference in that. Either way you need a roof over or head, so month after month you will either have to pay the rent or mortgage it is not something you can just cut. For some people might be cheaper to have a mortgage than renting. With rent you are not paying interest, but you are giving a security deposit. I see this more as a need just because rent doesn't appear on credit doesn't mean is not there or is not something you owe in the future.
Also most credit card debt is created but wants not needs. People want the latest ipod, tv, etc. To add to that people that usually carry cc debt also have mortgage. I guess as you said it will come down to priorities and a vacation IMO doesn't fall into that.

I can see your point. While people need a roof over their head they don't need to assume a 200K mortgage. They don't need a 4 BR house with 1 child. The biggest difference I see btw mortgage and renting is that with a mortgage you are building your own equity and by renting you are building someone else's. Regardless of how you slice and dice it, mortgage is still a debt. That is the point I am trying to make.

 

[ccgirl]

My interest rate on my mortgage rate is 4%. I get a tax right off. I can sell my house and pay off the mortgage, and have a little left over. 5 years ago I could have had a lot left over, but we all know that story. Most of us do not make 300,000+ a year to pay cash for a house. We need a place to raise are families in a decent neighborhood with good schools. For most of us that requires going into debt. Most of us need a safe car to drive are families around in. No way am I driving my kids around in a 15 year old beater. Most of us have car payments. I will draw the line at credit card debt unless I get a 0% offer on something, and then it has to be a reasonable. I think the whole 0 debt thing is great, and easy to do if your income is high enough. For most middle class families its difficult to achieve.

Selling the house isn't as easy as it used to be. You said it right there, "For most of us that requires going in to debt." BTW, my DH's car is 16 years old and in great shape. It is quite possible to pay cash for a reliable car. Skip the vacations and most people could probably buy a car with cash. In your example, I do not see the difference btw a car loan and a credit card. In most cases, if you sell you car you will not get enough to pay off the loan. I will completely agree that a zero debt is very difficult to achieve.

 

[crisi]

Crisi, I too appreciate your explanation. Very thorough.
Bolded is the point I am trying to make. If those with a mortgage gave up their vacations they could pay off the mortgage quicker and, therefore, be out of debt quicker.

A lot of people on this board have given up their vacations to pay down their mortgage. Including myself. A LOT of the people here who are debt free are debt free - including mortgage.

(I have a mortgage now after having gotten rid of it years ago, but its a strange situation. And yes, I take vacations with my mortgage. My mortgage is about leverage - and my marriage - not about debt)

But it has to do with how you value debt. Some people find a mortgage to be comfortable, but credit card debt to be uncomfortable.

 

[nunzia]

DH and I do not have an extravagant lifestyle, at least we don't feel like we do. Seeing the people around us finance homes, cars, vacations, furniture, electronics, then have nothing left after making all the payments on all these things was unnerving.

I remember trying to plan for DH's military retirement and our move to Florida. We came to Florida 6 months before his retirement to house hunt, vacation, and job hunt. I think we spent two weeks total away for that.

When we returned, people asked how we could possibly afford to just go buy a house. The concept that we save the money first, then purchase something, so there is no need for loans, seems normal to us, but wasn't among our friends.

If I had to choose between a $52,000 car and $52,000 for a pool, I'd go for the pool! LOL I'd use it and enjoy it more.

I have family who have lots of gadgets and stuff, but are poor due to paying interest. $1300 a month of their mortgage payment on their new home this month is interest. $1300~

Right and with all the crazy wacky silly mortgages that were out there (and maybe still are) people should really be careful at this time considering equity in the net worth since that 'equity' is only on paper until they actually need it and then if they can sell to get it. It has been way too easy to get credit/2nd mortgatges on your house and then pay only interest..just nuts. I'd rather have CC debt than one of those deals, but then again, I'd never go for one of those deals. I have an aquaintance whose kids have totally milked them dry all these years (yes..bad to let them but seems like alot do) and the husband has his own landscaping business, hard hard labor and he is so beat up from it..and the wife shared the other day that they have basically nothing..will retire next year on about $1,500 a month (SS) and their house, which they owned forever..and bought for 33K now has $66K owed and in retirement they won't even be able to make the payments. Holy Moly....

 

[crisi]

Right and with all the crazy wacky silly mortgages that were out there (and maybe still are) people should really be careful at this time considering equity in the net worth since that 'equity' is only on paper until they actually need it and then if they can sell to get it. It has been way too easy to get credit/2nd mortgatges on your house and then pay only interest..just nuts. I'd rather have CC debt than one of those deals, but then again, I'd never go for one of those deals. I have an aquaintance whose kids have totally milked them dry all these years (yes..bad to let them but seems like alot do) and the husband has his own landscaping business, hard hard labor and he is so beat up from it..and the wife shared the other day that they have basically nothing..will retire next year on about $1,500 a month (SS) and their house, which they owned forever..and bought for 33K now has $66K owed and in retirement they won't even be able to make the payments. Holy Moly....

That's why I prefer something a little more complicated than "credit card debt yes or no."

I wouldn't go on vacation if my net worth were less than zero - excluding retirement investments. I'd need history of positive cash flow averaged over several months. And I'd want sufficient liquid assets to pay for at least a months worth of expenses, PLUS the vacation. And that would be minimum - I still wouldn't be COMFORTABLE, but I might consider it. (ETA: I wouldn't consider it now that I have kids at home....but when I was single and it was just me....my comfort level with the edge was a lot higher).

More likely, I'd want a positive net worth above $10k (excluding 401k), positive cash flow over several months, and six months of expenses, PLUS the cost of the vacation (the positive net worth of over $10k could include the liquid assets).

So that means that if I'm carrying $50k in credit card debt, but I'm sitting on stocks with a value of $250k, and liquid assets that will cover six months of expenses - I don't care about the credit card debt. It also means that if my only debt is my $300k mortgage, on a house currently valued at $220k - I'm staying home.

And then there are circumstances where you say "I'm going anyway" - if I was broke and my kid was terminally ill, I'd go anyway if that was their desire.

 

[ccgirl]

That's why I prefer something a little more complicated than "credit card debt yes or no."

I wouldn't go on vacation if my net worth were less than zero - excluding retirement investments. I'd need history of positive cash flow over several months. And I'd want sufficient liquid assets to pay for at least a months worth of expenses, PLUS the vacation. And that would be minimum - I still wouldn't be COMFORTABLE, but I might consider it.

More likely, I'd want a positive net worth above $10k (excluding 401k), positive cash flow over several months, and six months of expenses, PLUS the cost of the vacation (the positive net worth of over $10k could include the liquid assets).

So that means that if I'm carrying $50k in credit card debt, but I'm sitting on stocks with a value of $250k, and liquid assets that will cover six months of expenses - I don't care about the credit card debt. It also means that if my only debt is my $300k mortgage, on a house currently valued at $220k - I'm staying home.

And then there are circumstances where you say "I'm going anyway" - if I was broke and my kid was terminally ill, I'd go anyway if that was their desire.

Now this, I get. Turns out we are on the same page afterall. I totally forgot to add in my stocks. They are for my retirement so I don't even consider them in anything. If you add up my stocks, 401K, and equity in my home I guess I am well off. But, I still have that pesky cc debt. Obviously, by my signature, we still go on vacation even with the credit card debt.

 

[nrpofp]

Selling the house isn't as easy as it used to be. You said it right there, "For most of us that requires going in to debt." BTW, my DH's car is 16 years old and in great shape. It is quite possible to pay cash for a reliable car. Skip the vacations and most people could probably buy a car with cash. In your example, I do not see the difference btw a car loan and a credit card. In most cases, if you sell you car you will not get enough to pay off the loan. I will completely agree that a zero debt is very difficult to achieve.

My car loan is at 3%. Most cc are above 15%. Yes I could sell some stocks, or skip some vacations and pay cash for a car. I don't see the need to do that with interest rates being so low. With my mortagage being less than 10% of income. I have no urgency to pay that off either. We spend about 20,000+ a year on vactions and I am comfortable doing that. If I had cc debt at 15% I don't think I could justify it. I am perfectly comfortable doing that with my low interest mortgage and car loan. If I didn't own a home I would have to pay rent to someone, and it would still be a monthy expense. If interest rates soar than yeah I will pay cash for my next car. If someone takes a vacation and owes 20,000 on cc. I don't have a problem with it. Thats there choice and if their comfortable with it. I say have a great vacation. For me personally I could not do it.

 

[GinnyEmma]

Lol, ccgirl, principal, equity, stocks and retirement aren't counted here, either.

 

[crisi]

Now this, I get. Turns out we are on the same page afterall. I totally forgot to add in my stocks. They are for my retirement so I don't even consider them in anything. If you add up my stocks, 401K, and equity in my home I guess I am well off. But, I still have that pesky cc debt. Obviously, by my signature, we still go on vacation even with the credit card debt.

Yep. But I wouldn't carry credit card debt with stocks available to sell. I do occasionally use my HELOC and leave my stocks intact (I'm about to get a new driveway and will put it on a credit card, use my HELOC for the credit card, and pay off the HELOC over a few months).

 

[jm-mom]

I think debt comes in all shapes and sizes but some debt is unavoidable and other debt is. Yes, a mortgage is a debt but you have to have a place to live right? Unless you live on a good public transit line, the same goes for a car. Luckily both of those can be obtained at a fairly low interest rate. Credit card debt is another story. If you carry a balance on your credit card, you are living outside your means. Of course if that's the only way to buy food for your kids or something, you have no choice for the moment. Most people I know that have credit card debt are not using their card for absolute necessities. Personally I think if you are carrying credit card debt, geting that paid and finding a way to live within your means is your top financial priority.

I have a friend that takes the family on vacation every year regardless of their finances. They feel they work hard and deserve it. And yet they owe thousands on credit cards and I cringe when they say they HAVE to go on vacation. That's how they were raised and don't believe in anything different.

My husband and I have been poor and struggled, amassed large amounts of credit card debt so I do know that end of things. We made the choice to sacrifice and get it all cleaned up. It took years and our kids didn't get their Disney trips, or trips anywhere for that matter. Today we have a year's worth of expenses banked, all the cards paid off and take annual Disney trips all paid in cash. I am a stay at home mom and we are by no means rich. My husband makes a good salary but we live in a small home we bought cheap years ago. My point is that if anyone living on credit cards just made the sacrifices needed, life does end up very nicely. Disney will still be there in a year or two or five or whatever it takes and being responsible and sacrificing will mean more to your kids in the long run. I'm sorry to be preachy but I have known both sides of the fence and it's just so much nicer and more relaxed on this side!

 

[ccgirl]

I think debt comes in all shapes and sizes but some debt is unavoidable and other debt is. Yes, a mortgage is a debt but you have to have a place to live right? Unless you live on a good public transit line, the same goes for a car. Luckily both of those can be obtained at a fairly low interest rate. Credit card debt is another story. If you carry a balance on your credit card, you are living outside your means. Of course if that's the only way to buy food for your kids or something, you have no choice for the moment. Most people I know that have credit card debt are not using their card for absolute necessities. Personally I think if you are carrying credit card debt, geting that paid and finding a way to live within your means is your top financial priority.

I have a friend that takes the family on vacation every year regardless of their finances. They feel they work hard and deserve it. And yet they owe thousands on credit cards and I cringe when they say they HAVE to go on vacation. That's how they were raised and don't believe in anything different.

My husband and I have been poor and struggled, amassed large amounts of credit card debt so I do know that end of things. We made the choice to sacrifice and get it all cleaned up. It took years and our kids didn't get their Disney trips, or trips anywhere for that matter. Today we have a year's worth of expenses banked, all the cards paid off and take annual Disney trips all paid in cash. I am a stay at home mom and we are by no means rich. My husband makes a good salary but we live in a small home we bought cheap years ago. My point is that if anyone living on credit cards just made the sacrifices needed, life does end up very nicely. Disney will still be there in a year or two or five or whatever it takes and being responsible and sacrificing will mean more to your kids in the long run. I'm sorry to be preachy but I have known both sides of the fence and it's just so much nicer and more relaxed on this side!

I agree with you on the mortage but still think a car loan is the same thing as a credit card. People could save their money and purchase a car that they can afford but they want a new car, with less miles etc and they don't have enough money so they take a loan out for it. That is like living outside of their means as well to me. That's the point I am trying to make, you say you are not trying to be "preachy" but life is better on "this side". The point is, if you waited a year, or two, or five and dind't take the WDW trips you could have purchased the car in cash and wouldn't have had to take a loan out for it.

The OP said she had 5K in credit card debt so unless your car loan is less than that, your debt is bigger yet you are saying she should wait to go until her cc is paid off but it is "okay" for you to go with your car loan. Of course, anything is okay it's your life but I am just really trying to understand why one is better than the other.

 

[mwatson011]

This seems to come up a lot. And I see all ends of the spectrums from the Dave Ramsey NO DEBT folks to the Disney even if they do not have a job

So my question is do you think it is ok or would you to Disney or any other vacation if you had any credit card debt.

Assuming:

Great retirement plans for both spouses
Some savings
Debt less then $5000 managable payments
Good rates on all debt and well within families means in secure positions with marketable skills and education.

Vacation would be paid in full from cash and would be less then amount to be fully debt free. Vacation is discounted and while it has lots of perks bugeting will limit finaicial impact.

So would you see this as okay or do you think it is foolish?

Hands down, I would go.

My parents mis-managed their money horribly when I was growing up, but my grandparents would take us on day trips as "vacation". DH's parents divorced when he was young, and he never went on any vacations. My memories don't include my dad because he was always working when we took these trips. DH's gets sad everytime he thinks about never having vacations.

Memories last much longer than well-managed debt, IMHO. Yes, I have a car note. No, I will not go that route again. I have 24 months left at 1.9% interest, and my balance is less than $7k.

So, would I rather save a few bucks in interest (literally) and pay off the car, postponing the vacation I am going to take someday, while in the meantime, my children get older? No, the interest payments are worth the joy on my children's faces when they hug the princesses and ride the rollercoasters because they are finally tall enough. Prices keep going up, and I am guessing that it will cost me more than a 1.9% increase to vacation 2 years from now than it does today, so technically, if I had to choose, in this case, it would be cheaper for me to take the vacation now. However, I will probably take another vacation in 2 years, so that point is moot.

We are paying the vacation in cash, and I think that makes the difference here. If we had to charge the trip, we would wait and save. Since the OP has the cash for the trip, I say go for it, and have a blast!

 

[disykat]

Of course, anything is okay it's your life but I am just really trying to understand why one is better than the other.

IMO, if people pointing out that cc generally have higher interest rates and most often carry debt on "wants" that have little resale value doesn't show you the difference, nothing will.

If "cc" stands for credit card, I'm guessing your love of them is pretty firmly entrenched and you're not eager to have their drawbacks pointed out!

 

[Disneyliscious]

My portfolio consists of 7 Myotonic goats, followed by liquid assets of 4 holstein calves. I have a positive flow of goat kids at an interest rate of 3.9%. I have a revolving loan aka a garden and a 401-hay as well.

My Angus is worth 30k even though I only owe 20k on her with an interest rate of 0%, thus if I feed her rice that is dusted with diamond droppings I can get a fair share for her in about 25 years. My liquid assets, oops I mean milk from the ole Jersey, are worth a gazillion dollars.

I have a barn worth 300k that I only owe 150k on. The fact that I bought it for 400k and the market dropped bears no meaning on the end result that Im still 150k to the good (we'll just forget about that 100k loss due to the decline in the barn market over the last few years - it never happened).

Now, being that I have all of this and I am so worthy, I feel the need to share it on a discussion board with people I will never meet so they will never know if I have all of this or not. I may be rich, smart or I may just be pee'ing in the wind to make myself feel better in front of others who will never find out the difference.

(I was just wondering if it made me feel any better to type out all of my net worth (fictional or not) to strangers on the internet......it didn't. I'll just keep sticking to the fact that Im broke, but I still make Disney happen and manage to pay my bills)